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Foreign Direct Investment and Economic Growth: Empirical Evidence from Sectoral Data in Indonesia

  • Abdul Khaliq

    (Department of Economics, Andalas University, Indonesia)

  • Ilan Noy


    (Department of Economics, University of Hawaii at Manoa)

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The paper investigates the impact of foreign direct investment (FDI) on economic growth using detailed sectoral data for FDI inflows to Indonesia over the period 1997-2006. In the aggregate level, FDI is observed to have a positive effect on economic growth. However, when accounting for the different average growth performance across sectors, the beneficial impact of FDI is no longer apparent. When examining different impacts across sectors, estimation results show that the composition of FDI matters for its effect on economic growth with very few sectors showing positive impact of FDI and one sector even showing a robust negative impact of FDI inflows (mining and quarrying). The sectors examined are: farm food crops, livestock product, forestry, fishery, mining and quarrying, non-oil and gas industry, electricity, gas and water, construction, retail and wholesale trade, hotels and restaurant, transport and communications, and other private and services sectors.

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Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200726.

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Length: 27 pages
Date of creation: 01 Oct 2007
Date of revision:
Handle: RePEc:hai:wpaper:200726
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